Ninth Circuit Affirms Iskanian, PAGA Claims are Non-Arbitrable.
Sakkab v. Luxottica Retail N.Am., Inc., No. 13-55184 (9th Cir. Sept. 28, 2015)
In a complete departure and reversal of numerous district court opinions, the Ninth Circuit Court of Appeals affirmed the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348 and held that representative actions brought under the Labor Code Private Attorneys General Act of 2004 (PAGA) could not be compelled to arbitration as they are qui tam actions in which the representative enforces civil penalties on behalf of the government and therefore did not conflict with the objectives of the Federal Arbitration Act (FAA) and could neither be contracted away by an individual nor preempted by the FAA. Rather, the Ninth Circuit held that waiving the right to bring a PAGA action would frustrate the purpose of the statute and California’s interest in enforcing its Labor Code. Moreover, the court of appeals affirmed that the Iskanian rule of enforcing California’s Labor Code through qui tam actions – which pre-date the FAA by centuries – is not a mechanism that applies solely to arbitration but rather is a generally applicable contract defense and therefore falls within the ambit of the savings clause of Section 2 of the FAA.
The Sakkab court also noted that because PAGA actions are not subject to class action procedures,[i] there is no need to protect the due process rights of absent employees in arbitration.[ii] The Ninth Circuit also held that Concepcion does not require all waivers in arbitration agreements of representative actions to be enforced, and that refusing to enforce a PAGA waiver does not defeat the contracting parties’ expectations. Rather, “a rule requiring that the parties’ expectations be enforced in all circumstances, regardless of whether doing so conflicts with generally applicable state law, would render the saving clause wholly ineffectual.”[iii] The appellate court also refuted the argument that the FAA should preempt the Iskanian rule simply because PAGA actions could involve high stakes for defendants and make arbitration less palatable than litigation.
[i] Baumann v. Chase Inv. Servs. Corp., 747 F.3d 1117, 1123.
[ii] Compare AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1751-52 (2011) with Arias v. Super. Ct. (2009) 46 Cal.4th 969, 984-87.
[iii] Sakkab, 2015 WL5667912 at *8.